Broadgate: Market News 11/7

11 July 2012

Stocks slipped in light trading on Monday, weighed down by weak economic data from Asia and signs of economic trouble in Europe, underscored by higher Spanish and Italian bond yields.

Monday’s decline, the third in a row for the S&P 500 index, comes as quarterly earnings reports get under way. Investors are anxious to see what impact weak demand in Europe and slowing growth in Asia have had on corporate America.

“We think 2Q earnings for the S&P 500 will be OK this quarter … we’re calling for a small 2 percent beat. That said, we expect the tone of earnings season to be quite negative,” said Jonathan Golub, chief strategist at UBS in New York.

Stocks pared losses late in the session, leaving indexes with just slight losses.

Alcoa Inc’s stock fluctuated throughout the day, ending up 0.3 percent at $8.76 in the regular session. Alcoa’s shares rose 2 percent in extended trading after the largest U.S. aluminum company and Dow component released its results, marking the start of the earnings season.

Corporate outlooks are at their most negative in nearly four years, and companies that have already reported have shown lackluster growth. Nearly two dozen S&P firms have already cited Europe’s woes – which seem to be worsening – as a concern.

While a majority of corporations may beat lowered analyst expectations, investors will be focused on how well companies are handling weakness overseas.

Based on “where we are today, we may see muted to a slightly downward reaction to earnings,” said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, whose firm manages about $13 billion in assets.

The Dow Jones industrial average ended down 36.18 points, or 0.28 percent, at 12,736.29. The Standard & Poor’s 500 Index was down 2.22 points, or 0.16 percent, at 1,352.46. The Nasdaq Composite Index was down 5.56 points, or 0.19 percent, at 2,931.77.

Volume was among the lightest of the year. About 5.1 billion shares changed hands on the New York Stock Exchange, the Nasdaq and Amex, compared with the year-to-date daily average of 6.85 billion shares.

Italian borrowing costs continued to rise on Monday while Spanish 10-year yields rose above 7 percent. That level is seen as unsustainable in the longer-term and reflecting doubts over how measures agreed last month to stem the euro zone debt crisis will be implemented.

In economic news, machinery orders in Japan fell at a record pace in May, while inflation in China eased to a 29-month low, suggesting falling demand from Europe and the United States for exports.

The overseas data comes on the heels of Friday’s disappointing U.S. jobs report, which showed non-farm payrolls grew by only 80,000 in June.

From a technical standpoint, the S&P 500 remains about 10 points above the 1,342 support level and the 50-day moving average at 1,340, said Randy Frederick, managing director of active trading & derivatives at Charles Schwab.

Among the day’s decliners, Visa Inc shares fell 1.3 percent to $123.65 and MasterCard Inc shares lost 2.3 percent to $431.27. UBS Investment Research downgraded the payment processors to sell, citing slower consumer spending in the United States and sluggish global economic growth.

Chipmaker Advanced Micro Devices’ shares dropped 11 percent to $5 after it warned that its revenue would decrease about 11 percent in the second quarter compared with the previous quarter due to softer-than-expected sales in China and Europe and weak consumer spending.

Commodities

Brent crude fell below $99 a barrel on Tuesday over concerns about demand growth after Chinese crude imports weakened in June, while worries of supply disruptions eased after a halt in the labor strike at Norway’s oil industry.

Brent had slipped more than $2 a barrel to hit a low of $98.22 after jumping 2 percent to settle above $100 on Monday on fears the Norway strike would totally shut production at the world’s eighth largest crude exporter.

By 11.48 p.m. EDT on Monday, Brent was down $1.98 to $98.34 and U.S. crude fell $1.29 at $84.70 a barrel.

Gold was little changed on Tuesday, retaining gains from the previous session, while investors waited for China trade data for clues on the health of the world’s second-biggest economy.

Spot gold traded nearly flat at $1,586.19 an ounce by 0041 GMT, after snapping two days of losses in the previous session.

U.S. gold edged down 0.2 percent to $1,586.30.

Currencies

The euro fell and hovered near a two-year low on Tuesday after a meeting of euro zone finance ministers offered no positive surprises, while the Australian dollar sagged after disappointing Chinese import data.

The euro dipped 0.2 percent from late U.S. trade to $1.2287 , edging back in the direction of a two-year low of $1.2225 hit the previous day on trading platform EBS.

The euro fell 0.3 percent against the yen to 97.70 yen , not far from a one-month low of 97.48 yen that had been hit on Monday.

The Aussie dollar was last down 0.3 percent on the day at $1.0174.

The U.S. dollar dipped 0.1 percent against the yen to 79.50 yen, holding within a roughly 79.08 yen to 80.10 yen range seen since late June.

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